ATTACHMENT 6 ESTATE SETTLEMENT PROCEDURES ACT (RESPA) Coldwell Banker urges Congress and the Department of Housing and Urban Development to ensure that RESPA is not interpreted or amended in a manner which will reduce competition and eliminate freedom of choice for the consumer with respect to the provision of mortgages and real estate services. In particular, Congress and HUD should ensure that a real estate broker/salesperson ("broker") or other real estate service provider can receive compensation from a lender or borrower for the value of mortgage services provided. I. THE ISSUE IS NOT REFERRAL FEES Coldwell Banker agrees that fees paid by lenders to brokers for the simple referral of business are illegal and that abuses should be curtailed. Section 8 of RESPA already flatly prohibits the payment or receipt of referral fees. The issue, therefore, is whether real estate brokers should be singled out among all other real estate service providers and be prohibited from being compensated for the fair value of mortgage services they provide lenders or consumers. II. REAL ESTATE BROKERS SHOULD BE PERMITTED TO RECEIVE THE FAIR VALUE OF In today's changing real estate marketplace, in which the number of mortgage products has expanded and leisure time has been shortened, borrowers have sought convenience in selecting mortgage loans and real estate related services. Real estate brokers are ideally situated to provide borrowers and consumers with services in these areas. For example, real estate brokers have expended substantial resources in requiring and learning sophisticated computer hardware and software that can provide comparative mortgage information, prequalify borrowers, select a suitable mortgage and process mortgage loan applications. Brokers have also invested in training and updating their employees about the latest developments in mortgage products and origination procedures. Naturally, these investments have not been without cost and consequently real estate brokers have charged fees to both lenders and home buyers for the value of the mortgage services they furnish. If brokers are prevented from being compensated for the value of these services, they will stop providing them, which will decrease consumer choice and competition and ultimately increase consumer costs. 1. Allowing Compensation To Real Estate Brokers For Mortgage Many mortgage lenders find they can enter new markets by providing real estate brokers with computerized loan origination systems that not only display their loan products and rates but also prequalify and process loans for the broker's customers. These are often placed in real estate offices in less populated markets that would otherwise be too costly for a mortgage lender to enter by establishing branch offices. Allowing real estate brokers to offer mortgages on behalf of these lenders -- in addition to mortgage services they offer on behalf of lenders already in that market - increases competition in the market and the choice of mortgage products for mortgage customers. 2. Allowing Compensation To Real Estate Brokers Will Ultimately Lenders that use real estate brokers to prequalify, originate and process mortgage loans through computerized origination systems or other related systems are using the broker to provide services that otherwise would be provided by the lender's own employees, usually loan officers. Employing brokers in this fashion allows the lender to approve loans more efficiently. Real estate brokers have excellent access to borrowers and to the information needed to process and originate loans. Most lenders who use real estate brokers in this fashion find that their origination costs decrease, thereby permitting a reduction in the charges to consumers. III. MBA'S ARGUMENTS AGAINST REAL ESTATE BROKERS RECEIVING COMPENSATION In an attempt to protect its members from increased competition from real estate brokers and other mortgage lenders, MBA has urged that HUD interpret RESPA or that Congress amend RESPA to prohibit a real estate broker who receives a fee from the underlying real estate transaction from receiving compensation from a lender or borrower for providing mortgage services. The MBA attempts to support its proposal by arguing that these activities create (1) a conflict of interest, (2) adverse steering; and (3) quality control problems. MBA's arguments are unfounded and are merely an attempt to protect the turf of its members. 1. Real Estate Brokers' Counseling of Borrowers Assists Sellers And No conflict of interest exists when a real estate broker who receives a commission from the seller for the sale of a house assists a buyer/borrower in obtaining home financing. The buyer and seller have already agreed on the purchase of a house at specific price. The real estate broker, therefore, is advising the buyer/borrower about an entirely different matter (mortgage finance) than the broker advised the seller (maximizing the resale price of the seller's home). In fact, the home seller wants the real estate broker to assist prospective buyer/borrowers about their financing options so that buyers can complete the sale. Moreover, Coldwell Banker recommends and believes it is the practice of most real estate brokers to sign written agreements with the seller and with the borrower that disclose the real estate broker's relationship with each party and the broker's responsibilities to each. Such disclosure eliminates any theoretical conflict of interest that could exist by providing the buyer with full knowledge of the broker's involvement with, and compensation by, the seller. Given the convenience and resources that the broker brings to the mortgage origination process, this approach is far more sensible and efficient than prohibiting the real estate broker from counseling home buyer/ borrowers on real estate financing. 2. Permitting Real Estate Brokers To Be Fairly Compensated Does Not Many consumers consult real estate brokers about mortgage loan options because the brokers have expertise about a number of different mortgage programs or possess computerized loan information systems to evaluate others. So long as brokers disclose any relationship they have in a mortgage lender they recommend, no adverse steering can result. Similarly, the broker's disclosure, prior to a referral of any compensation he may earn from a lender, will eliminate adverse steering. Moreover, real estate brokers, as professionals, are in business to sell homes. Assisting the borrower to obtain financing is only one of several services they provide to consummate that sale. Success in the real estate brokerage business is dependent on satisfied customers and the recommendations of an extensive network of real estate professionals. Sacrificing a borrower's interest in order to earn a fee from a lender is counterproductive since it is likely to irrevocably damage a broker's most important asset --- his or her (their) reputation with peers, customers and clients. 3. Permitting Real Estate Brokers To Be Fairly Compensated Does Not Lead to Quality Control Problems Real estate brokers, who counsel consumers about mortgage alternatives, prequalify borrowers and process loans for lenders, receive the same, if not greater, training as other mortgage brokers or loan officers. The verification that lenders need to make based upon real estate broker-generated information is no different than the verification of information generated by a loan officer. Accordingly, the assertion that real estate broker participation in mortgage programs leads to quality control problems is unsupported by either fact or logic. SUMMARY Real estate brokers have come to play an important role in the mortgage origination process and the provision of related services. Real estate brokers offer the latest in electronic mortgage systems and provide consumers with the expertise, information and convenience they demand. As the FTC has observed, providing consumers with greater information and expertise, like other forms of advertising and information dissemination, actually lowers, not raises, prices for professional goods and services. Accordingly, Congress and HUD must act by placing the interests of consumers first. Permitting real estate brokers to be fairly compensated for mortgage brokerage services will ensure that such services continue to be offered, thereby increasing competition and consumer choice, and ultimately lowering origination costs and mortgage prices. The arguments to the contrary made by MBA are merely an attempt to protect the turf of its members and to eliminate real estate brokers as competitors. Such arguments are unpersuasive and should be rejected. TESTIMONY OF THE NATIONAL ASSOCIATION OF REALTORS® BEFORE THE SUBCOMMITTEE ON HOUSING AND COMMUNITY DEVELOPMENT OF THE COMMITTEE ON BANKING, FINANCE AND URBAN AFFAIRS AUGUST 8, 1990 INTRODUCTION Mr. Chairman, Members of the Subcommittee, my name is Norman D. Flynn. I am a REALTOR® from Madison, Wisconsin and the 1990 president of the NATIONAL ASSOCIATION OF REALTORS®. On behalf of the 800,000 members of the NATIONAL ASSOCIATION OF REALTORS®, I would like to thank you and the Members of the Subcommittee for this opportunity to present the views of the NATIONAL ASSOCIATION OF REALTORS® regarding the Real Estate Settlement Procedures Act (RESPA), particularly the issues surrounding REALTOR® involvement in the mortgage origination and settlement process. My testimony will provide (1) an overview of the issues related to REALTOR® involvement in the mortgage origination and delivery process; (2) an historical background of the evolution of the mortgage delivery system and REALTOR® involvement in the same; (3) consumer benefits derived from REALTOR® involvement; (4) a legislative and regulatory background on RESPA and development of implementing regulations; (5) a summary of NAR's development of policy with respect to RESPA; (6) discussion of RESPA issues relevant to REALTORS®. OVERVIEW - THE TRUE ISSUE For the last two years, the NATIONAL ASSOCIATION OF REALTORS® has been defending the right of its members to be remunerated for providing customers and clients with real estaterelated services associated with the brokerage function. In spite of the fact that the Real Estate Settlement Procedures Act (RESPA) clearly allows payments for services rendered, some in the industry are challenging the applicability of that legislation to REALTORS® involved in the mortgage origination process. This situation arose because of two reasons: (1) HUD's failure to prosecute violations being perpetrated by certain mortgage brokers who were attempting to remain competitive by paying illegal referral fees; and (2) the advent of computerized loan origination programs and the technological evolution of the mortgage delivery system. In the name of fighting illegal referral fees, opponents of NAR's position have played off of historical fears about consumer abuses experienced prior to the enactment of RESPA and have attempted to shut out a viable competitor - REALTORS® -- in the mortgage business. |